Both supporters and skeptics of aggressive enforcement of the Foreign Corrupt Practices Act have criticized the fact that the act is enforced much more often against corporations than against individuals. Some critics of FCPA enforcement often assert that it is unfair for the government to insist on corporations acknowledging criminal liability when the government is unwilling or unable to prosecute the individuals who committed the actual crimes. At the same time, supporters of aggressive FCPA enforcement argue that the failure to hold individuals personally liable, and to impose criminal penalties (including prison time) on those culpable actors undermines the FCPA’s deterrent effect. And they have a point: many doubt that fines and other monetary sanctions on corporations—at least at the levels that can be imposed under the FCPA—are sufficient to deter bribery, and there is evidence to support this claim.
Of course, individual FCPA liability is hardly novel; a number of past FCPA cases have included criminal convictions of individual company employees. But many have called for dramatically ramping up focus on individuals, and there are some signs that the U.S. Department of Justice may be heeding those calls. For someone like me, who tends to think that FCPA enforcement needs to be even more robust, this would seem like welcome news. And for the most part it is… but I do have a nagging worry, which may be entirely groundless, but that I want to try to flesh out in this post. The worry goes something like this:
The FCPA, like all laws, contains a number of ambiguities. Who is a “foreign official”? (Can that category included officials at state-owned enterprises or nominally private bodies with a quasi-public role?) What sorts of offers fall within the category of “anything of value”? (Can that include charitable donations or favorable treatment of family members, with no direct tangible benefit to the foreign official?) What sorts of bribery-induced benefits are for a business purpose? What is the scope of the statutory exemption for “facilitating payments”? Just how broad is the statute’s jurisdictional scope? For the most part, the U.S. government has adopted broad interpretations of the FCPA’s provisions. These broad interpretations are in my view not only plausible but persuasive, on both legal and policy grounds. But not everyone agrees. And, as I’m regularly reminded at the conclusion of every U.S. Supreme Court Term, U.S. federal judges do not (alas) always share my view of the law.
Nonetheless, the U.S. government has mostly been able to avoid lots of litigation challenging its interpretation of the FCPA, because corporations—the targets of most FCPA investigations—are (so the conventional wisdom goes) extremely reluctant to risk indictment, let alone trial, for a variety of reasons (reputation, the collateral legal consequences of an indictment, the cost and uncertainty of litigation, etc.). Virtually all corporations resolve FCPA investigations via non-prosecution agreements (NPAs) or deferred prosecution agreements (DPAs). The corporation and its representatives may grumble that the government’s theory of liability was based on an overly broad construction of the statute, but they’re not going to challenge it.
Individuals are, or at least may be, different. Although most individual criminal defendants also prefer to avoid trial by striking a plea bargain with prosecutors, as a relative matter individual criminal defendants are much more likely to go to trial, particularly in the FCPA context. Indeed, the very small number of FCPA cases that led to an appellate court ruling on a matter of law seem to disproportionately involve individual defendants: U.S. v. Esquenazi, U.S. v. Kozeny, U.S. v. Kay, and U.S. v. Liebo, for example. It is telling that despite the fact that the large majority of FCPA cases involve corporate rather than individual defendants, almost all of the admittedly small number of FCPA cases that generated an appellate judicial decision involved individual defendants.
That suggests that if the government were to go after a lot more individuals for FCPA violations—if it were to double or triple the number of individuals targeted, for example—we could expect a substantial increase in the number of FCPA cases litigated, and an increase in the number of appeals. Of course, the government’s track record on issues of law in FCPA cases, especially at the appellate level, is quite good. (The government has lost a few high-profile cases at trial, but mainly on factual or procedural grounds.) So perhaps the odds are that the government would win these cases on appeal, which would have the effect of reaffirming, and further validating, the government’s position on the meaning of the law. But that’s not guaranteed. What if the government loses some of these cases? What if the increase in litigation that we might expect as a consequence of more individual prosecutions means that we have a number of appellate courts, or perhaps the U.S. Supreme Court, ruling, for example, that the definition of “foreign official” is much narrower, or the meaning of “facilitating payment” is much broader, than the government has been asserting? That would, from an FCPA enforcement perspective, be a disaster, as it would affect not only the case in which the opinion issued, but all other cases within the jurisdiction, whether against individuals or corporations, that raise the same legal issue.
This concern is compounded by another factor: Generally prosecutors prefer to bring cases where the defendant’s conduct looks especially egregious, or the evidence is particularly strong, preferably both. In those cases, the defendant is more likely to appear unsympathetic to the judge (and the defendant knows this). But the more cases the prosecutor brings, the more compromises must be made on one or both of these dimensions. And even though these factors aren’t supposed to matter when judges issue rulings on “pure” questions of law (such as whether a corporation with less than 50% public ownership can ever count as a government instrumentality), in fact judges are routinely influenced by such factors. So more cases against individual defendants will probably also mean more cases against sympathetic individual defendants, which may make the government’s past track record of success in these cases an uncertain guide to its odds of prevailing in future cases.
Putting this all together: Substantially increasing the number of individuals targeted in FCPA criminal prosecutions is likely to result in more litigation, and more of this litigation will involve defendants who appear sympathetic; the result may be a greater likelihood of appellate judicial rulings on issues of law that dramatically narrow the FCPA’s substantive scope, which would reduce the statute’s deterrent effect (for individuals and corporations alike). Now, for some FCPA critics, this is precisely the point, and would be something to celebrate. (To some in that camp, the U.S. government’s desire to avoid having its views of the law “tested in court” bespeaks a lack of “rule of law” in the FCPA context and the weakness of the government’s legal position.) But for those who favor expansive FCPA enforcement, the shift toward individual liability may entail a trade-off: more individual liability may strengthen deterrence given the law as it stand, but might lead to litigation that narrows the law’s scope. That’s not guaranteed, of course, and it may not even be likely. But it’s at least possible, and for that reason worth thinking about. Is it worth actually worrying about? There I don’t know. I do worry about it a bit, but perhaps I’m being paranoid, or too-clever-by-half? Anyone out there have views on this?